THE SERVICE THEORY OF 
VALUE, 



BY 



RUFUS FARRINGTON SPRAGUE, 



THE SERVICE THEORY OF 
VALUE, 



BY 



RUFUS FARRINGTON SPRAGUE, 



Two Copies R 

JAN 50 1903 

r :.ntry 
• <\> XXc. No 

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cop} b. 



5 



Copyright. 1903, by 
RUFUS FARRINGTON SPRAGUE. 



In compliance with the expressed wish of the mem- 
bers of the American Economic Association, who so kindly 
listened to my paper on Value, I have had a limited number 
of copies struck off in pamphlet form in advance of the 
regular publication of the Association. 

As no roll was called at this meeting, and it is mani- 
festly impossible to now secure a correct list of those in at- 
tendance, I shall take the liberty to mail a copy of this 
pamphlet to all who might possibly have been present — that 
is to say, to all who, as members of the Association, are reg- 
istered as in attendance at the Philadelphia meeting, Dec. 
26th-29th, 1902. 

This by way of explanation to those who, though not in 
attendance at the session in question, yet have this pamphlet 
thrust upon them. 

Having spent the otherwise leisure moments of half a 
life time in pursuit of the truth, I have no ambition to pro- 
mote error, nor to add in any way to the uncertainty, not 
to say confusion, that for more than a century has vexed 
the mind no less of scholar than of layman, concerning the 
true solution of this most elusive and baffling of problems. 
I therefore earnestly solicit the most rigid scrutiny, and in- 
vite the most unsparing criticism of this, the Service Theory 
of Value, as well as of the Service Theory of Exchange upon 
which it is based. 

It is in this Service Theory of Exchange, as distin- 
guished from what may be termed the "Product Theory," 
that the most radical departure from commonly accepted 
ideas will be found. 

Rufus F. Sprague. 
Greenville, Mich., January 14th, 1903. 



The Service Theory of Value.* 



"The charm of novelty, at least, should attach to a 
philosophy of value, provided only that it prove to be the 
true one; for it is certain that in all that has been written on 
this much elucidated theme, a statement of the real nature 
of the thing discussed is not to be found." John B. Clark's 
Philosophy of Wealth, Chapter V, page 70. 

"A recent Avriter — Bohm-Bawerk — has well said, 'There 
are certain unsettled questions in economic theory that have 
been handed down as a sort of legacy from one generation to 
another;' questions that 'return again and again, like 
troubled spirits doomed restlessly to wander until the hour 
of their deliverance shall appear.' Among these is the ques- 
tion, 'What is the ultimate standard of value?' " Charles 
William Macfarlane's Value and Distribution, page 19. 

The foregoing quotations from comparatively recent 
publications are made, simply as a reminder of what a 
patent attorney would call, "the present state of the art." 

DISCOMFORT. 

To the impulsive yearning for happiness may be traced 
every vital impelling principle of rational life. 

By happiness is here meant, not happiness in a limited 
degree, but happiness unlimited, absolute, complete. 

Such happiness is necessarily unattainable, and thus it 
is that man is the perpetual prey of unsatisfied desire — in 
other words, of discomfort. And it is in this broad sense 
that I shall use the term discomfort in this paper. 

*Paper read before the members of the American Economic Asso- 
ciation at Philadelphia December 28th, 1902. 



UTILITY. 

While, strictly speaking, the term utility implies the 
relation of a means to an end, and separate and apart from 
the well-being or happiness of a subject there can be no util- 
ity, yet it is a well-nigh universal custom to so obscure the 
idea of relativity, as to enable us to ascribe utility to com- 
modities and things of every sort that are endowed with 
qualities, properties, or potentialities fitting them for use or 
employment as a means of ministering to those ever present, 
but infinitely varying, desires for relief from discomforts 
felt, or regarded as impending in the immediate or remote 
future. 

Employing the term in this, its popular sense, a cata- 
logue of known utilities would embrace all things whatso- 
ever, recognized as having available capacity to so minister 
to desire as to promote human happiness. Thus our list 
would embrace, not only things material and tangible, like 
food, clothing, and shelter, but things as intangible and 
evanescent as a strain of music, an eloquent gesture, or an 
inspiring thought. 

Indeed, everything endowed with, or capable of being 
endowed with capacity to promote human happiness, will be 
regarded as having utility proportionate to its capacity to 
this end. 

PRICE. 

Some of these things, as, for example, the air we breathe, 
are bestowed by nature with such lavish hand as to be had 
for the taking. Without conscious effort, the individual 
may appropriate them to the full measure of his demands, 
to be employed by him in relieving or warding off the dis- 
comforts which, without such ministration, must grieve, 



vex, or torture him. Others, as, for example, food, clothing, 
or shelter, are not so lavishly bestowed. Indeed, by far the 
greater portion of those things deemed essential to health, 
comfort, happiness, and even life itself, are of this sort, and 
may not be had at all, except at such outlay of toil and 
energy, as of itself involves a penalty of discomfort that 
may approach, or, for that matter, measurably exceed in 
gravity, the discomfort that will result from the non-gratifi- 
cation of desire. 

Now, these hindrances that, in every day life, are in- 
terposed between our desires on the one hand, and the pos- 
session and use of certain utilities on the other, this objec- 
tive resistance, which, if overcome, must be overcome by 
laborious and onerous effort, is the price imposed by the 
conditions of our environment. Upon the payment of this 
price, by personal sacrifice of some sort, is frequently con- 
ditioned, not only our well-being and happiness, but, in 
many instances, life itself. 

To the fact of price, which always implies resistance to 
be overcome, and is always objective, may be ascribed all 
rational activity; and such utilities as may be acquired 
without conscious effort may be ignored in this connection, 
s,ince they are not, properly speaking, factors in economic 
activity. 

COST. 

The personal discomfort or sacrifice of happiness atten- 
dant upon surmounting these difficulties, upon overcoming 
this resistance, upon putting aside these hindrances, upon 
paying this price, is cost. 

As enforced effort of every sort becomes irksome in 
time, involving a penalty of fatigue or discomfort, cost, as a 
rule, will be measured by the discomfort or sacrifice of hap- 



8 

piness such expenditure of effort or energy involves. Thus 
cost always presents itself as an alternative discomfort, and 
implies some sort of personal sacrifice. Utilities that are 
acquired by the individual without sacrifice, are acquired 
without cost, and for such individual, at least, the utilities 
in question hear no price. Therefore, since price is always 
objective, and cost is always subjective, it is evident, that, 
but for the objective resistance termed price, the term cost- 
discomfort would have no significance. 

PRODUCTION. 

Production implies an intelligent application of effort 
or energy, to the task of overcoming the difficulties that, in 
our dealings with nature or environment, constitute price. 
The factors generally recognized in production are land, 
labor, and capital ; but in addition to these, and most im- 
portant of all, should be mentioned productive intelligence. 
The first, land, affords opportunity ; the second, labor, fur- 
nishes the physical energy necessary to the employment of 
nature's forces; the third, capital, supplies the instrumen- 
talities employed as auxiliary to other things. But that 
power that discerns and turns to best advantage the pro- 
ductive qualities of land, that most effectively directs the 
application of productive effort or labor, and that devises 
the most effective instrumentalities for aiding and augment- 
ing physical effort, is productive intelligence. 

Thus production involves an application of both men- 
tal and physical energy to the task of so guiding, directing 
or manipulating the available forces of nature as to effect 
such changes or modifications in the relations of things in 
time and space as to increase their adaptibility or availabil- 
ity as a means of adding to the sum of human happiness. 

While what may be termed the gross utility of each pro- 
ductive effort will be measured by the utility of its product, 



its net utility can never exceed the utility of such product 
minus the disutility or cost-discomfort attendant upon the 
effort that surmounts its price. 



GAIN AND LOSS. 

To the extent in which our expectations are realized — 
that is, to the degree in which the thing acquired promote® 
happiness in excess of the happiness sacrificed as cost — does 
gain attend the transaction. Gain implies utility plus, or 
added happiness. And the hope of gain is the source and 
fountainhead of all rational, and therefore of all economic 
activity, for the terms are practically synonymous. Thus 
gain is a relative term, implying happiness plus. It results 
no less certainly from a diminution of cost-discomfort, than 
from augmented utility of the product of a productive effort. 
It stands for the difference between these two. 

Loss is the reverse of gain. It implies happiness minus. 
It results, not from intelligent purpose or design, but from 
ignorance, fortuitous circumstances, or disaster. 

Briefly, loss is the product of error. It implies not hap- 
piness phis, as does gain, but happiness minus. 

SERVICE. 

Were man an isolated or solitary being, a condition 
precedent to his acquisition of any price-bearing utility 
would be the self-infliction of the specific cost-discomfort 
attendant upon surmounting its price-resistance; and fur- 
ther inquiry into the methods or motives of his activities 
would be superfluous, since each for himself must find a true 
solution of life's problems, in the employment of his produc- 
tive powers in channels yielding the maximum of utility 
with the minimum of cost-discomfort. 



10 



As a member of society, however, be the same primitive 
or highly organized, the complexity of the problem that con- 
fronts him is increased indefinitely. No longer compelled to 
rely upon his own unaided efforts, he may now avail himself 
of the services of others, conditionally obtainable, as a 
means of acquiring certain price-bearing utilities without 
the infliction of the specific cost-discomfort that would 
attend their acquisition by a direct application of his pro- 
ductive powers to the task of surmounting their price. 

The term service implies aid given, assistance, rendered, 
by one to another in surmounting the price-resistance atten- 
dant upon the acquisition of a price-bearing utility. In 
other words, it implies an application of productive effort 
by one in behalf of another, that, by surmounting price-resis- 
tance, supplies that other with a desired utility, without the 
specific cost-discomfort that, but for the service rendered, 
must inevitably attend its acquisition by him. 

Thus the prime, nay the sole, function of a service is to 
surmount price-resistance, and supply its beneficiary with a 
price-bearing utility, while sparing him the specific cost- 
discomfort attendant upon its production. As a means to 
this end, a service has a utility all its own — a utility, by the 
way, based, not upon the utility of its product, from which 
it is a thing apart, but solely upon the degree or gravity of 
the cost-discomfort its rendition averts. 

Indeed, in every consideration of economic activity that 
involves the rendition of a service, a sharp distinction must 
be drawn between the utility of the service that supplies a 
thing, and the utility of the thing such service supplies. 
Thus, for example, the service that supplies me with water 
from the neighboring spring quenches no thirst, and is en- 
titled to no credit for utility on that score. All that the 
service has accomplished in the way of adding to the sum of 



11 

my happiness, is embraced in the cost-discomfort its rendi- 
tion averts. 

Indeed, the utility of the water remaining constant, it 
is evident that the utility of a service that supplies it, will 
be governed by the price-resistance to be overcome. That is 
to say, it will increase with increased, and diminish with 
diminished distance or difficulties. In this instance, as in 
every other involving the rendition of a service, the utility 
of such service is strictly limited by— that is, it can never 
excee( j — the cost-discomfort it averts in the fulfillment of its 
proper function, namely, the surmounting of price-resis- 
tance in behalf of its beneficiary. 

Attention has heretofore been called to the fact, that, 
without price-resistance, the term "cost-discomfort" would 
have no significance. It is now equally evident, that, without 
the cost-discomfort incident to overcoming the price, service 
could have no utility, and the term service would be mean- 
ingless. As, without gain, there can be no incentive to pro- 
ductive effort (or rational activity of any sort), and to 
afford gain the cost-discomfort attendant upon such effort 
must be measurably less than the discomfort that would re- 
sult from deprivation of the thing produced, — which, by the 
way, is the surest measure and only proof of a thing's utility 
— it is evident that the maximum utility of a service will 
find its limitations in the cost-discomfort that may, with 
gain, be undertaken in the production of a given utility. 

Thus the maximum utility of a service can never exceed 
the utility of its product, minus such gain as will serve as 
an incentive to the exchange. Any and every price-bearing 
utility acquired of, or through the aid, assistance, or instru- 
mentality of another, is acquired through the service of that 
other. Such aid, assistance, or instrumentality, however re- 
mote, constituting a service that, under normal conditions, 
will or should impose upon the beneficiary a degree of obli- 



12 

gation proportionate to the degree in which cost-discomfort 
has been diminished by it — that is, proportionate to the 
utility of such service as a means of surmounting price-resis- 
tance. 

Too much stress cannot be laid upon the fact that the 
only measure of a service's utility for liim in whose behalf 
it is rendered, is the cost-discomfort it averts. Not only is 
there no direct connection between the utility of a service 
and the utility of its product, but there is no common 
standard of comparison between them, other than that of 
the discomfort attending the deprivation of any two given, 
but different, utilities. 

EXCHANGE. 

Unfortunately for our happiness, or for that which 
at first glance might seem in very great measure to in- 
volve it, services can no more be had for the asking 
than can the price-bearing utilities it is their function 
to supply. Indeed, we find, not only that services bear 
price no less inexorably than their products, but that, as 
a rule, such price is based upon, and finds its equitable 
measure in, the character of the price-resistance over- 
come. 

While Nature is impartial, and the price-resistance 
imposed by her remains unchanged regardless of our 
needs, man is less considerate in the disposal of his ser- 
vices, and rarely hesitates to take advantage of his op- 
portunities and our necessities to demand increased 
compensation for his services. 

Thus, in the event of monopoly or of scarcity, he 
may base his demand for compensation for his service 
— i. e., his price — not upon an equitable basis, but 
upon what he conceives to be our needs. Indeed, if, 
under such circumstances, he fails to place an extortion- 



13 

ate price on his service, it is usually from considerations 
of expediency rather than of right. 

An exchange of services presents itself as an alterna- 
tive to the cost-discomfort attendant upon the produc- 
tion of the desired commodity. 

It is an old adage, trite but true, that "it takes two 
to make a bargain." Now, a bargain, as we know, is 
neither more nor less than a mutual understanding or 
agreement between two parties, fixing the terms and 
conditions for a contemplated exchange of services. The 
only terms upon which, under normal conditions, we 
are able to secure the services of another in our behalf, 
are that we stand prepared to render him an acceptable 
compensatory service. 

In every complete exchange, each party to it ren- 
ders the other a service, the service rendered by each 
being accepted by the other as full compensation for 
the service rendered by him. Thus, primarily, an ex- 
change implies an interchange of mutually compensatory 
services. A condition precedent to the consent of each 
party to an exchange, is that, in the fulfillment of its 
terms, each for himself shall gain. Now, to insure gain 
for each in a transaction of this sort, it is essential that 
the service undertaken by each shall be rendered with 
less cost-discomfort to him than would attend the pro- 
duction of the thing it is the province of the compensa- 
tory service of the other to supply. 

It is thus through the instrumentality of an ex- 
change of service for service, involving what has aptly 
been termed the "mechanism of an exchange," that we 
are enabled to avail ourselves of the services of others, 
as a means of acquiring certain price-bearing utilities 
with cost-discomfort not only different in character, but 
measurably less in degree, than would otherwise neces- 
sarily attend their acquisition by us. 



14 

We have seen that there is no necessary relation 
between the utility of a thing and its price, and since 
the sole function of a service is to avert cost-discomfort 
by surmounting price, it is evident that there can be no 
necessary relation between the utility of a service that 
supplies the thing and the utility of the thing such ser- 
vice supplies. 

The controlling factors in every exchange are the 
services involved in the exchange, and not the products 
of these services. Indeed, services, and not the things 
these services supply, are the real utilities, in a certain 
sense the real products, with which we have to deal in 
every contemplated exchange. That is to say, it is in the 
relative utility for each, of the services involved in the 
transaction, and not in the relative utility for each, of 
the things these services supply, that we find the meas- 
ure of loss or gain that dominates the terms of every 
exchange. 

Thus, regardless of the relative utility of the things 
parted with and acquired through the instrumentality of 
an exchange of services, the gain resulting from the 
transaction will equal the cost-discomfort averted by the 
service in our behalf, minus the cost-discomfort imposed 
upon us by our rendition of the compensatory service. 

If, however, through error in judgment, the cost- 
discomfort imposed upon us by the rendition of a com- 
pensatory service exceeds the cost-discomfort averted by 
the service in our behalf, we shall lose by the transac- 
tion, even though the thing acquired through such ser- 
vice has utility a hundred, or, for that matter, a thou- 
sandfold greater than the utility of the thing parted 
with. This seeming paradox but emphasizes the fact 
that we gain or lose by an exchange only as the cost- 
discomfort attendant upon the acquisition of a price- 
bearing utility is increased or diminished thereby, the 



15 

relative utility of the things exchanged having no part 
in determining the attendant gain or loss. 

As a rule, the rendition of a compensatory service 
involves, not onJy the production of a price-bearing util- 
ity, but the parting with it as well. If, now, the depriv- 
ation of this utility imposes a cost-sacrifice greater in 
degree than that which attends its production, or repro- 
duction, then will the cost-discomfort resulting from 
the deprivation represent the true cost-discomfort. It 
must not be supposed, however, that this implies a bal- 
ancing or weighing of the cost-discomfort attending the 
deprivation of the thing parted with, against the discom- 
fort that would result from the deprivation of the thing 
acquired — that is, the utility of the one against the 
utility of the other. In an exchange the cost-discomfort 
or sacrifice imposed by its terms, is balanced only against 
the cost-discomfort averted. Always disutility against 
disutility. And we gain or lose only as the disutility 
of cost is diminished or increased by the transaction. 
Furthermore, it is evident that, in the absence of the 
permanent impairment of the productive powers through 
fatigue, or of the opportunity to produce, through the 
exhaustion of raw material, or some equally potent cause 
or causes, the thing in question will be promptly repro- 
duced, in which event the cost-discomfort attendant 
upon deprivation will be measured only by the fatigue 
incident to its reproduction, plus the discomfort result- 
ing from the temporary deprivation. 

The only incentive to an exchange is gain. In 
every gainful exchange — and without gain there would 
be no incentive to the transaction — the utility of the ser- 
vice in our behalf equals the disutility of cost imposed 
upon us by the rendition of the compensatory service, 
plus the gain incentive. The utility of the thing ac- 
quired through an exchange of services remaining con- 



16 

stant, the utility of the service that supplies it will in- 
crease with increased, and diminish with diminished, 
price. 

VALUE. 

Assuming free access to the opportunities so gener- 
ously provided by nature in our environment, we meas- 
ure the gross utility of our own productive effort by the 
utility of its product, and its net utility, or gain, by the 
utility of its product minus the disutility, or cost-dis- 
comfort incident to its production. 

On the other hand, in the consideration of the pro- 
ductive efforts or services of others in our behalf secured 
through an exchange, we are less generous in the be- 
stowal of the credit that may be traced to favorable 
conditions of environment, and, refusing to consider the 
utility of the product as a factor in the transaction, in- 
sist upon measuring the utility of such service by the 
character of the price-resistance it surmounts, and the 
net utility, or gain, resulting from the exchange, by the 
cost-discomfort averted, minus the cost-discomfort im- 
posed by the rendition of the compensatory service by us. 

We have here two separate and distinct concepts of 
utility, differing not only in character, but in degree. 
Thus, in the first instance, utility is predicated upon the 
utility of the product. In the second it is predicated 
solely upon the utility of the service that supplies this 
product — in other words, upon the utility of the service 
as a means of averting the cost-discomfort attendant 
upon producing it. 

It is in this utility of a service in supplying a thing, 
as distinguished from the utility of the thing this service 
supplies, that we find the marked distinction between 
concepts of value and concepts of utility. 



17 

The confusion attendant upon the discussion of this 
subject is due to failure to thus differentiate between 
these two terms — in other words, to the universal cus- 
tom of ascribing to the product of a service that measure 
of utility that has its origin and direct limitations only 
in the utility of a service that supplies it. 

This, too, though we know full well that the product 
in question has a utility all its own — a utility not only 
quite independent of, but differing in character and 
degree from, the utility of the service thus erroneously 
ascribed to it. 

Without losing sight of the limitation that the util- 
ity of a product places upon the utility of the service 
that supplies it — that is, the utility of the service can 
never exceed the utility of the product, — it is evident 
that, barring this, the utility of the product has no part 
or influence in determining the utility of such service, 
and it is equally evident that this service utility varies 
with price-resistance, and with price-resistance only. 

While there can be no value without utility, the 
converse of this is not true. Thus, though the air we 
breathe has the highest utility, a service that supplies it 
has no value — that is, no service utility. So, too, though, 
water is essential to life, and consequently of the great- 
est utility, a service that supplies it will, as a rule, have 
little value. The reason for this is found in the fact that, 
in the first instance, there being no price-resistance to 
be surmounted, there can be no service, in the proper 
sense of that term, while in the second, since the price- 
resistance to be surmounted is trifling, the utility of 
the service that surmounts it is equally trifling. In 
short, within the limitations fixed by the utility of a 
product, the value of a service that supplies it will vary 
with the gravity of the price-resistance to be surmounted. 

Increased value of a service in our behalf, like in- 



18 

creased utility of a product possessed, implies increased 
happiness. One is no less utility than the other. The 
former is applicable exclusively to services; the latter, 
to their products. 

Thus value is service utility. It is properly appli- 
cable, not to the products of services, but solely to th'? 
services that supply products. 

The difficulty incident to maintaining this distinction 
is magnified by failure to bear constantly in mind the 
fact, not only that there is an exchange of services in- 
volved in every transaction of this sort, but also that 
the services, and not the utility of their products, are 
the dominant factors in the exchange. We give expres- 
sion to the concept of a product's value in terms of the 
product of what is regarded as an equivalent service — 
i. e., a service that surmounts an equivalent price-resist- 
ance, — or what is regarded as a compensatory service — 
i. e., a service that is, or in your judgment should be, ac- 
ceptable to him in whose behalf it is rendered. Yet, 
though thus invariably stating the comparison as be- 
tween utility of product and utility of product in nego- 
tiating an exchange, a moment's reflection is all that is 
necessary to convince one that the fundamental compar- 
ison is always, though perhaps unconsciously, not be- 
tween the utility of the products under consideration, but be- 
tween the services that, by surmounting price-resistance, 
supply them. In other words, the distinction between 
the utility of a product and the utility of a service that 
supplies it — i. e., its value, — though difficult to maintain 
in discussing this subject, is always intuitively recog- 
nized in practical life. 

Thus, when I assert that commodities A and B 
have the same utility, I arouse an entirely different train 
of thought than when I assert that they have the same 
value. 



19 

The statement that they have the same utility in- 
stantly impels you to make a mental inventory of their 
respective properties. In comparing the sums of such 
properties, you unconsciously take cognizance of the fact 
tha\ while, under given conditions, the utility of both 
might be the same, under other circumstances, just as 
likely to arise, it might differ widely. Thus you could 
give at most only a qualified assent. 

When, however, I assert that the value of A and B is the 
same, your mind reverts, not, as in the preceding case, to 
their respective properties, and to conditions under 
which such properties would avert or relieve discomfort, 
but to the difficulty of procuring each — in other words, 
to their price-resistance; and if in your judgment such 
price-resistance was the same, you would unhesitatingly 
concede their value — that is, the utility of a service that 
would supply them — to be the same, and that, therefore, 
the price of such service should, in equity, also be the 
same. 

Thus, as prefaced, in practical life a wide distinc- 
tion is always intuitively made between the utility of a 
product and the utility of a service that supplies it — in 
other words, its value. 

Two products will be regarded as having equivalent 
value when the price-resistance attendant upon the pro- 
duction of each is equivalent, absolutely regardless of 
their respective utility. So, too, will they be regarded 
as having equivalent value when in the acquisition of 
each through exchange, the same price-resistance must 
be surmounted or the same compensatory service ren- 
dered. 

While it is undoubtedly true that the individual 
regards two products as having the same value when 
the cost-discomfort to him attendant upon the produc- 
tion of each is the same in degree, yet, owing to the 



HB 201 
.S76 
Copy 1 



20 

unequal opportunities and instrumentalities of men, to- 
gether with their different degrees of physical power and 
productive intelligence, the cost-discomfort attendant 
upon surmounting the same price-resistance will vary, 
and is therefore a less equitable basis of exchange than 
price-resistance. 



To sum up: 

Value is service utility — service utility always — 
never product utility. 

Value is to a service that supplies a product what 
utility is to the product supplied, the term value, no less 
than the term utility, implying capacity for usefulness. 

Not only is value inherent in, but it is of the very 
essence of service. So true is this that we are perfectly 
warranted in saying, not only that without value there can 
be no service, but, conversely, that without service there 
can be no value. Neither can exist without the other. 



LIBRARY OF CONGRESS 

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